It's no secret that
the majority of Canadians today don't really understand the life insurance
policies they own or the subject matter altogether. Life insurance is such a
vital financial tool and important part to your financial planning that it is incumbent
upon you to have a basic level of understanding.
Here are 3 quick
pitfalls that are important to be aware of.
Incomplete Details In
The Application
All life insurance
contracts have a two-year contestability clause which means the insurer can contest
a submitted claim within two years of the application date if material
information was not disclosed during the application process. If you have
forgotten to note a relevant fact in your application pertinent to the claim it
is possible that your claim could be denied. Fraudulent acts such as lying in
the application would not only have a claim denied but possibly also have your
policy rescinded entirely. It goes without saying that one should always be
truthful when completing a life insurance contract or any insurance contract
for that matter. A copy of the original application often makes a part of the
policy and generally supersedes the policy itself. Having-said-that, each
insured has a 10-day right to review their policy once they receive it. In that
time period if you feel the policy is not up to the standard you thought it to
be, you can return it to the company and all premiums paid would be refunded
Buying The Right Term
Coverage For Your Situation
This process should
first start with a question: "What do I need the insurance for?" If
your need is to cover a debt or liability then perhaps term is best however, if
your need is more long-term such as for final expenses, then permanent or whole
life would be a better fit. Once you have established your need you'll then
have to decide what type of coverage you want; term or permanent.
Term contracts are the
simplest to understand and the cheapest because there is an "end" to
the policy; generally 5, 10, 15, 20 sometimes even up to 35 years. If the policy
is renewable an increased premium will be required come the end of the term and
this is often a big shock to the client's bottom line. As an example: a 35 year
old male, non-smoker with a 20-year term and 300k benefit may pay anywhere from
$300 to $400 per year in premiums. When this policy renews at age 55 his new
annual premium could go as high as $3,000 per year! Most people don't
understand this and come term end are devastated, generally unable to continue
the policy. It is recommended that your term program have a convertibility
clause so that you have the option of converting your term life into a
permanent policy. You can exercise this right at any time within the term of
the policy without evidence of insurability. Taking a term policy without a
convertibility clause should only be done when making your purchase for
something of a specified duration. Also, the short side to term life is that it
does not accumulate any value within the policy whereas permanent/whole life
does.
Permanent/whole life
is a very complex from of life insurance because it has both insurance and
investment aspects to it. These policies are most beneficial because you have
value built up in the policy and you are covered until death however, they are
much more expensive than term insurance. An option that you can consider is a
permanent policy with a specified term to pay it. Using our previous example,
you could have a permanent policy that has a 20-pay term meaning you will make
premium payments for the next 20 years and after that you will have your policy
until death without ever making another payment towards it. It is very
important to understand the variables along with your needs before you make
your purchase.
Buying Creditor Life
Insurance vs. Personal Life Insurance
One of the biggest
misconceptions people have is that their creditor life insurance is true
personal life insurance coverage and will protect their family in the event of
their death. Far too often consumers purchase these products, generally found
with their mortgage and credit cards, by simply putting a checkmark in a box
during the application process agreeing to have the plan. It sounds like the
responsible thing to do but many families are left in paralyzing situations
come claim time. Creditor life insurance, such as mortgage life insurance, is
designed to cover the remaining debt you have. Making timely mortgage payments
is ultimately declining your remaining balance. Creditor life insurance also
declines as your debt declines. Keep in mind that the lender is named as your
beneficiary in your policy so consequently, upon death your remaining balance
on your mortgage or credit card is paid to the lender, not your family. In a
personal life insurance policy you choose the beneficiary and upon death the
full benefit amount is paid to the beneficiary of your choice.
Personal life
insurance is a great asset to have for a large number of reasons. When you buy
life insurance your buying peace of mind but, you must have your situation
properly assessed and be sure that you are clear on exactly what it will do for
your family.
For other great
financial resources and information click here.
As an independent
insurance advisor and income protection specialist for almost a decade, Ryan
has been providing clients with customized personal insurance and financial
solutions through disability, life, critical illness, long-term care, and other
personal products while providing strategies for hedging income and preserving
wealth.
Article Source: https://EzineArticles.com/expert/Ryan_D._Forrester/2093018
